Signaling Sustainability, Inviting Scrutiny: How Sustainability Policies Shape the Focus of Shareholder Activism

This paper investigates whether and to what extent corporate sustainability policies attract shareholder activism—and whether such attention is general or selectively targeted. While sustainability initiatives are typically viewed as signals of legitimacy and ethical commitment, we argue that they may also heighten stakeholder expectations and intensify scrutiny of internal governance practices. Drawing on signaling theory, we conceptualize sustainability policies as external signals of stakeholder-oriented values that may invite greater activist attention when misaligned with governance mechanisms. Using a longitudinal dataset of Fortune 250 US firms from 2011 to 2019, we find that sustainability policies do not generate a broad increase in shareholder activism. Instead, they channel activist focus toward symbolically salient governance issues, particularly CEO compensation. This targeted attention is amplified in firms with strong reputational capital, where inconsistencies between sustainability rhetoric and internal practices are more visible and normatively charged. By shifting the focus from whether sustainability invites activism to where that activism is directed, this study offers new insights into the selective nature of shareholder responses to sustainability signaling.